Korea’s “10% Withheld” Construction Scandal Is Finally Over — Here’s What Changes

Building a single apartment block involves dozens of subcontractors. Yet for decades, a quiet rule governed Korean construction sites: pay 90% of the contract amount, then hold back the remaining 10% “for later.” Subcontractors often waited years — or fought costly lawsuits — just to collect what they were owed. On July 24, 2026, South Korea’s Fair Trade Commission (FTC) signed a mutual cooperation agreement with 30 mid-sized construction companies, putting a formal end to one of the industry’s most stubborn practices. The details are far more concrete than you might expect.

Why Now, and Why Mid-Sized Builders?

The FTC held its “Construction Industry Mutual Cooperation and Fair Trade Agreement” ceremony at the Korea Specialty Contractors Association building in Seoul on July 24, 2026 — bringing together 30 mid-sized construction firms ranked 21st to 50th in construction capability assessments, along with the Korea Specialty Contractors Association. This follows a similar agreement signed with the top 20 major builders back in May, meaning all 50 of South Korea’s largest construction companies are now at the table.

The subcontracting transactions handled by these firms totaled approximately 12,000 contracts worth 32.2 trillion won in 2025 — roughly 20% of all subcontracting deals by volume and 60% by value. In other words, more than half of South Korea’s entire construction subcontracting market is now covered under this agreement. But beyond the numbers, the timing matters. Unfair practices — withheld payments, unjust contract clauses, and blame-shifting in defect disputes — have persisted for years on Korean construction sites. The FTC has levied fines and penalties under the Subcontracting Act, but enforcement alone never broke the cycle. The same bad habits kept coming back.

The Three Core Changes in This Agreement

① Complete Elimination of Retainage Holdbacks

The practice known as “retainage” — where a general contractor pays only around 90% of progress payments and defers the rest until project completion — has long strangled subcontractors’ cash flow. Without that final 10%, smaller firms struggled to cover labor costs and purchase materials. The scale of the problem was laid bare in a survey by the Korea Construction Policy Research Institute, which found that 44% of specialty contractors had experienced retainage being held back on at least one project.

Under the new agreement, participating companies are obligated to pay subcontracting fees in full within the legally mandated 60-day period, in cash, with no retainage withheld — barring extraordinary circumstances. This isn’t a vague pledge to “do better.” It’s a binding commitment written directly into the agreement.

② Self-Auditing and Removal of Unfair Contract Clauses

The agreement also targets predatory contract terms that shift costs — such as industrial safety expenses and waste disposal fees — onto subcontractors. Participating builders must now internally review their contracts and attachments, remove any such clauses, and stop pressuring subcontractors to accept contract values lower than the amounts they submitted during bidding. Costs that general contractors were always legally required to bear can no longer be buried in a single line of fine print and dumped on smaller partners.

③ Shared Responsibility in Defect Lawsuits — A Brand-New Provision

One notable addition sets this agreement apart from the May deal signed with the top 20 builders: a clause addressing defect-related litigation. Mid-sized construction firms are no strangers to defect lawsuits, and some had developed a troubling habit of keeping subcontractors completely in the dark about ongoing litigation — only to demand those same subcontractors absorb the damages after losing in court. Going forward, general contractors must immediately notify their subcontractors when a defect lawsuit is filed, and any resulting damages must be apportioned according to actual responsibility.

Will This Agreement Actually Make a Difference?

Signing an agreement doesn’t automatically change what happens on a job site. The real question is whether companies follow through. The FTC, the Korea Specialty Contractors Association, and the participating builders plan to address this directly by forming a public-private oversight body in the second half of 2025 to regularly monitor compliance and enforcement of the Subcontracting Act. The existence of a structured review mechanism — not just a ceremonial handshake — is what separates this from an empty declaration.

What makes this moment significant is the shift in approach. The FTC’s traditional playbook relied on catching violations after the fact and hitting offenders with fines. But pure enforcement breeds a “don’t get caught” mentality rather than genuine cultural change. This agreement creates incentives for builders to proactively clean up their own contracts and practices — a move aimed at transforming industry norms from the inside, rather than policing them from the outside.

If You’re a Subcontractor, Check These Things Right Now

• Review any active project contracts for retainage clauses. If the general contractor is a signatory to this agreement, you now have solid grounds to demand those clauses be removed.
• Confirm that your contract explicitly states a payment deadline of within 60 days.
• Before signing new contracts, request the removal of any provisions that shift industrial safety costs, waste disposal fees, or other expenses that legally belong to the general contractor.
• If your general contractor is involved in a defect lawsuit and hasn’t notified you, check whether they are a signatory to this agreement — and if so, consider filing a report with the FTC’s complaint portal.

For subcontractors, knowing the specifics of this agreement is not just good background knowledge — it directly affects your negotiating power. You can only push back confidently when you know exactly what obligations the other party has accepted.

Sources

• FTC Signs Mutual Cooperation Agreement with 30 Mid-Sized Builders — Newspim
• 30 Mid-Sized Construction Firms Agree to Share Defect Lawsuit Liability, Abolish Retainage — Herald Economy
• FTC, Specialty Contractors Association, and General Contractors Agree to End Subcontracting Unfair Practices — Financial News
• Specialty Contractors, General Builders, and FTC Join Hands to Root Out Subcontracting Abuses — Asia Today
• FTC Signs Agreement with 30 Mid-Sized Construction Firms to Spread Culture of Mutual Cooperation — News Seoul